ImpairmentTests

Impairment tests are accounting procedures used to determine whether the carrying amount of an asset or a cash-generating unit (CGU) exceeds its recoverable amount. The objective is to ensure assets are not reported at more than the economic value they are expected to recover through use or disposal. Tests are required for many asset types and can be triggered by indicators of decline or, for certain assets, by annual mandatory testing.

Under IFRS, impairment testing applies to most assets. Goodwill and indefinite-life intangible assets require at least annual testing and whenever indicators of impairment arise. The recoverable amount is the higher of fair value less costs of disposal and value in use. If the asset’s carrying amount exceeds the recoverable amount, an impairment loss is recognized in profit or loss, reducing the carrying amount to the recoverable amount. In IFRS, impairment losses may be reversed later for most assets, but not for goodwill.

Under US GAAP, impairment testing also applies to long-lived assets and other intangible assets, with goodwill impairment measured separately. Generally, impairment losses are not reversed for goodwill, and reversal may be limited or not allowed for other asset categories depending on the standard and asset type. The measurement of impairment typically uses estimates of future cash flows, discount rates, and other assumptions about market conditions and asset performance.

Reporting involves disclosures of the amount of impairment, the assets affected, the methods used to determine the recoverable amount, and key assumptions and sensitivities.